This week we had the opportunity to get to know a forward-looking way to deal with Real Estate with REswap, through the CEO Rodrigo Bourbon.
REswap is developing the first institutional, residential Sale & Leaseback program in Europe. Founded in 2020 by Rodrigo Bourbon, REswap provides unique financial services and solutions for an estimated total available market of 18.5 billion euros in Portugal.
In our previous article, we classified Crowdfunding as the Holy Grail of Real Estate investment. Following the same reasoning, REswap could be classified as the Holy Grail of illiquid families.
REswap is currently based at the Fintech House and is part of Portugal Finlab. The company is now waiting for the legal and regulatory overview from the Bank of Portugal and CMVM and plans to enter the market in the coming months.
REswap will not only be a new player in the fintech and proptech market, but a game-changing one.
Whom does it target?
It is common for households to own equity in their house. However, liquidity shortages can also exist due to unforeseeable events. Under such circumstances, a lot of the time there is no other option but to sell the property, most often than not, at a discount, thus facing a loss and forcing households to leave the place where they once thought they would build a life in. Households in such scenarios are the REswap target clients, and they are generally part of one of the following groups:
Families seeking to sell their house as soon as possible, without the time to wait for the regular longstanding and bureaucratic process of property sale;
Families that want to keep living in their house but have to sell it in the immediate to have enough liquidity to solve their financial distress.
Families under a process of transition between an old house and a new one.
What is the Business Model?
REswap's Business Model can be divided into three essential stages:
First stage: The client sells the property to REswap (the company is available to purchase up to 70% of the property's market value);
Second stage: A Leasing contract is signed between REswap and the client. The client will pay a certain amount of rent for the desired amount of time (usually an amount equivalent to the market of a similar house);
Third Stage: Until the Leasing contract expires, the client can at any point, make one of two decisions:
1. Rebuy the house for the same price at which he had previously sold the house for, or
2. Resell the property, finding a third buyer who will pay the market price. In this case, the client cashes in the difference between the final price that the third buyer pays and REswap’s initial buying price.
Why does REswap stand out from every other company?
Simplicity and Efficiency in the Process
On average, the regular house sale procedure takes around 180 days to be completed. Using REswap's financial services, between the initial deal proposal and the documentation verification, we can expect to close the deal within 5 to 7 days. This makes it up to 36x faster than the other options in the market.
Easier Credit Concession
Unlike Banks, which evaluate credit based on current income, REswap considers that households have equity. Therefore, dealing with banks results in many families being forced to enter the previously described cycle of a rush discount house sale. However, at REswap, credit is defined taking into consideration the client's equity.
Second Chance conceded
One of the main targets of REswap is illiquid households who intend to keep their houses, despite current financial difficulties. Hence, by providing the necessary liquidity, REswap allows households to keep their houses, giving them a second chance to organize their finances and go through the shortage liquidity periods with more stability.
Insolvency precaution
In the scenario where the client becomes insolvent, while another creditor would take the property as collateral, REswap considers the principal that had already been paid by the agent, giving back that same amount in case of insolvency. Therefore, clients have another motive for preferring REswap's credit line: it is more accessible and less risky in default and a fair solution when things go wrong.
Hybrid Business
The regular players in the Real Estate market focus on providing specific services. On the one hand, banks focus on providing housing loans. On the other hand, real estate agencies are intermediaries in the selling/buying process. However, REswap works in a hybrid model by providing both: the credit lines and working as a Real Estate company that promotes and buys properties.
Potential gains
Under the possibility of rebuying the property after the leasing contract's expiration, the client will pay the same amount previously loaned by REswap. However, as the client retakes full ownership of the house, the property's market value could have changed. Thus, possibly the house's market value could have increased throughout the leasing period, allowing the client to choose between keeping the property - increasing equity value - or selling at a higher price than what it was bought for - accomplishing capital gains.
Conclusion
In conclusion, REswap appears as a safeguard for anyone that owns a property yet lacks liquidity. This project has, undoubtedly, a great potential to grow in the upcoming years, as it brings a revolutionary solution to a market gap that is still unexplored.
Authors: Miguel Martins and Yohan Sousa
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